Show Me the Money: High loan demand spurs pressure for new deposits

Banks are stepping up the hunt for deposits in order to meet strong local demand for loans.

“For the first time in seven years, I’m noticing a competitive pressure on deposits,” said Connie Deneweth, chief executive officer of Traverse City State Bank. “Banks are raising interest rates on money markets and [certificates of deposit].”

Savers are taking notice. Grand Traverse County banks had a combined $2.4 billion in deposits as of June 30, up nine percent from $2.2 billion on June 30 last year, according to the Federal Deposit Insurance Corporation.

“Customers have been able to almost double their interest income from two years ago,” Deneweth said. “It’s still a small number, but it has increased significantly.”

The boost is a result of two interest rate hikes by the Federal Reserve this year and the competition for deposits by banks hoping to lend more money to businesses and homeowners.

Traverse City State Bank’s deposits rose to $249 million as of June 30 from $225 million a year ago, up 10.6 percent. Its share of total bank deposits in the county rose to 10.47 percent this year from 10.25 percent a year ago.

Scot Zimmerman, Chemical Bank’s community president in Traverse City, agreed with Deneweth that a strong local economy is pushing banks to search for new deposits to fund loan demand.

“From a banking perspective, there’s been strong commercial and consumer loan growth and strong residential mortgage activity. The local economy is very healthy,” he said. “Strong loan demand is requiring we go into the marketplace and draw additional deposits.”

Chemical Bank has been boosting CD rates for a limited time to attract savers., which tracks deposit interest rates, said rates on CDs are the highest they’ve been in five years, although they are still low. For example, the annual percentage yield on a one-year CD nationally was 0.625 in November, up from a recent low of 0.421 in July of 2012.

Fifth Third Bank’s deposit market share was flat this year compared to a year ago at 26.43 percent. But deposits rose to $629 million this year from $583 million a year ago, an eight percent increase.

David Shooltz, Fifth Third’s market president and commercial banking team leader, attributed some of that increase to the bank capturing more of the household market.

Fifth Third has been traditionally strong in the middle-market business banking segment. Although business loan activity is healthy, Shooltz said many business owners are still cautious because of the harrowing times they experienced in the 2008 recession.

“We’re still not seeing the capital investment we would like to see” by businesses, he said. “People are still cautious from the 2008-2009 time frame. They’re building up cash.”

Fifth Third has had one major change in its executive ranks this year. Autumn Gillow became vice president of commercial banking in August after holding the same position at Chase Bank.

She replaced John Melcher, a 25-year bank veteran who became chief operating officer at Crystal Mountain resort in May.

“Autumn is a lifelong Traverse City resident,” Shooltz said. “It’s nice to be able to bring in someone with her experience and wealth of knowledge of the community.”

Chemical Bank maintained its ranking as second in Grand Traverse County for deposits behind perennial market leader Fifth Third Bank. Deposits rose to $444 million as of June 30 from $440 million a year ago. But its market share slipped to 18.67 percent from 20 percent last year as deposit growth lagged behind some competitors.

Midland-based Chemical Financial Corp., the bank’s parent company, undertook a restructuring in which it closed 13 branches statewide and laid off 230 employees, about seven percent of its workforce. Chemical is the state’s largest Michigan-based bank.

Bank officials said the restructuring was a result of customers doing more of their banking online and Chemical’s 2016 acquisition of Talmer Bancorp. Since then, Talmer’s top two executives took over the leadership of Chemical.

Zimmerman said the restructuring had little impact on Chemical’s local operation. In September, it consolidated its Front Street branch into its State Street branch, just 60 yards away.

Zimmerman said he expects market share to remain stable or increase next year, adding that the slight market share loss this year “is not an indicator of lost business in the marketplace.”

Several banks changed places in the ranking of deposits this year. JPMorgan Chase & Co. boosted its market share from 14.93 percent last year to 17.02 percent and jumped to third place in share from fourth place last year.

Huntington National Bank, which ranked third in deposit market share last year, slipped to fourth place this year with a market share of 15.79 percent.

Huntington grew deposits by $29.4 million this year, much of that increase due to its acquisition of FirstMerit Bank, which had an office in Traverse City.

Julie Hunko, area manager at Chase, attributed the bank’s performance to a strong focus on customer relationships. Brisk business also prompted the bank to open a fifth branch office this year in Traverse City.

“We go to where our customers are,” said Hunko, who recently joined Chase from Honor Bank. “We determined the area needed an additional branch.”

Huntington officials could not be reached for comment.

First National Bank and PNC Bank also swapped rankings this year. First National rose from seventh to sixth place in deposit market share, while PNC Bank fell from sixth to seventh. Each bank had less than four percent of the market.

There are 10 banks with full service offices in Grand Traverse County, down from 11 last year, according to the FDIC. That’s a result of Huntington’s acquisition of FirstMerit.

Ludington-based West Shore Bank moved into the Traverse City market by opening a mortgage lending and wealth management office here in October, but does not offer full banking services.

“Strategically, expanding into the Grand Traverse area presents a strong opportunity for West Shore Bank,” said President and CEO Raymond A. Biggs in a news release.

Deneweth said it’s difficult for banks to boost deposit market share much in a single year because of strong customer loyalty.

“Banking is very competitive; however, the trend is that customers are remaining loyal and shopping less [for banking services],” she said. “If a bank worked with them in the tough times, they’re very comfortable in staying with it.”